The 31-year-old Gregory, who was released by the Patriots on Feb. 28, had signed with the Kansas City Chiefs on July 31.
"After entering the game as an undrafted free agent, I was fortunate enough to play twice as long as the average player," Gregory said in a statement through his agent, David Canter. "I'm tremendously happy with my decision and being able to walk away from this great game both healthy and on my own terms."
Gregory added that the birth of his daughter Aviana this offseason, "changed my life's perspective." He plans to pursue a career in coaching.
A Syracuse alum, Gregory appeared in 111 games with 54 starts over his NFL career, totaling 386 tackles, seven interceptions and 27 special-teams tackles. He also played in 11 playoff games (5 starts).
During his time in New England, Gregory was lauded as one of the smartest players on the team and was involved in Jets quarterback Mark Sanchez's unforgettable "Butt Fumble" in 2012, returning it 32 yards for a touchdown.
"Steve Gregory was a true professional and a pleasure to coach," said Patriots coach Bill Belichick in a statement. "He was one of the most well-liked and respected players because everything he did was the right way, with a great attitude and in the best interests of the team. On behalf of the New England Patriots, we thank Steve for his contributions on and off the field and wish him our very best in the future."